GS Paper: GS3-13.Infrastructure: Energy, Ports, Roads, Airports, Railways etc:

Context

The announcement of enhanced targets for climate action by India, particularly for achieving net-zero emissions by 2070, has highlighted the importance of long-term planning for decarbonising the economy.

Why do we need a decarbonizing strategy

• The Government of India has responded to rapid reductions in the cost of renewable energy (RE) based power, with dramatic enhancements in the targets for RE.
• With this approach, India has done well and is on a path to fulfilling its Paris Agreement commitments for 2030.
• However, the road ahead will be challenging, and therefore, a coordinated strategy for decarbonising the economy efficiently and effectively will be required.

Strategy for decarbonising the economy

• Factoring in the changes: By 2070, there will be many changes in technology, environmental conditions, and the economy.
• The planning horizon of about 50 years will need to be broken up into shorter periods so that new knowledge about emerging technologies can be incorporated into plans.
• Monitoring of the progress: Plans will need to be monitored so that the course can be corrected to respond to any unforeseen problems.
• Five years, as the UK has used, seems like a reasonable “Goldilocks ideal.”
• An autonomous and technically credible agency, like the Climate Change Committee (CCC) in the UK, should be set up.

Decarbonising the power sector

• Biggest source of GHG: The power sector is the biggest source of GHG emissions and also the easiest one to decarbonise.
• Reducing emission intensity is a good overarching objective; increased use of RE or non-fossil-fuel generation is a means to that end.
• The four 2030 targets: Non-fossil fuel generating capacity to be 500 GW, RE capacity to be 50 per cent of all generation capacity, reduction in emission intensity by 45 per cent, and avoidance of GHG emissions by 1 billion tonnes — are inter-related.

Suggestions to decarbonise the power sector

• Set emission intensity targets: Setting permissible emission intensity in terms of grammes of carbon dioxide equivalent per kWh of electricity sold, would be a good option for targets in the power sector.
• Single emission-related objective: In order to decarbonise the power sector, it would be best to have a single emissions-related objective so that an optimal strategy can be developed to achieve the objective at the lowest cost.
• Avoid separate targets: Currently there is a profusion of separate targets for almost every resource used to generate electricity.
• For example, there are separate renewable purchase obligations (RPOs) for solar, non-solar RE, and hydropower.
• Such an approach reduces the flexibility of distribution companies to select resources to meet their loads, resulting in a non-optimal resource mix, and a higher cost of electricity.
• Reconsider RPO: RPOs are usually imposed to support nascent technologies, and because RE is now competitive on costs with conventional generation, the need for RPOs should be reconsidered.
• The use of emission intensity targets is a better approach.

Consider the question “Why power sector holds the key to decarbonising the Indian economy? Suggest the strategy India should follow to decarbonise the power sector.”

Conclusion

The use of five-year interim targets for permissible emission intensity and the establishment of an autonomous and credible agency to advise the government on targets and policies and to monitor progress will greatly facilitate an effective, economic, and smooth transition to decarbonisation of the power sector first, and the Indian economy later by 2070.

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Context

The power sector in India is at an inflection point. Three developments are triggering a shift across the power chain, generation and distribution in particular, and are in the process deepening existing faultlines, and exacerbating the distress.

Three changes driving the shift in power sector

1) Central government’s approach towards distribution segment

• Till recently, the Centre had preferred to incentivise states, nudging them to address the issue that lies at the heart of the power sector’s woes — turning around the operational performance and financial position.
• However, despite multiple attempts, not much has changed.
• But over the past few months, the Centre appears to have changed tack.
• The Centre no longer appears content to simply nudge states into acting.
• This change in stance is evident from enforcing the tripartite agreement to recover the dues owed to power producers like NTPC by discoms in Jharkhand, Tamil Nadu and Karnataka to now regulating coal supplies to states where power generating companies have been delaying payments.

2) Covid impact on government finances and ability to support discoms

• Notwithstanding buoyant tax revenues this year, Covid has wreaked havoc on government finances.
• The general government debt stands at 90 per cent of GDP.
• Add to this demands for greater welfare spending, uncertainty over state government finances once the five year GST compensation period ends next year, and the limits to which states can continue to support discoms will increasingly be tested.
• To what extent accounting jugglery can be used once again to clean up discom debt is debatable.
• After all, even the liquidity facility arranged by the Centre to help discoms pay off their obligations will have to be paid back.

3) Loss of monopoly and shift towards renwable

• Until now, consumers had little recourse to alternate sources of supply.
• Consequently, discoms, which are essentially geographical monopolies, were able to charge higher tariffs from commercial and industrial consumers to cross-subsidise agricultural and low-income households.
• But the situation appears to be changing.
• Migration of high tariff paying consumers through open access and investments in captive power plants is gaining traction, driven in large part by the emergence of solar as an alternative at seemingly competitive tariffs.
• This reduced reliance of high tariff paying consumers on discoms will only exacerbate their already precarious financial position.
• The pace at which this transition is occurring will only accelerate in the coming years.
• On the supply side, at the global and the national level, there is a push towards cleaner fuel, solar in particular.
• Flowing from this — though with debatable relevance given the current levels of per capita emissions — is the domestic policy thrust towards renewables.
• Solar, in particular, benefits from both explicit and implicit subsidies — land at concessional rate, exemption from interstate transmission charges, discounted wheeling charges, cross-subsidies for open access, SECI taking on counterparty risk, and others.
• It also enjoys “Must Run” status.
• On the demand side, at current tariffs, solar is emerging as an attractive alternative for the high tariff paying commercial and industrial consumers.
• On their part, discoms are trying to salvage a losing situation.
• To stem the flow of high paying customers, some have begun levying an additional surcharge on whoever opts for open access to lower the cost differential.
• Others are shifting from net metering to gross metering — essentially charging consumers higher tariffs — above particular consumption levels.

Conclusion

Continuously subsidising discoms for their AT&C losses (operational inefficiencies), and for not supplying power at commensurate tariffs to low-income households and agricultural customers (for political considerations) will become fiscally untenable.

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